SPA's Joceyln Johnston on a Government of Contracts

By Jacqueline Corbett|January 29, 2009

More and more, government appears to be running on contracts—even for our most crucial services and efforts. In stories on social services, health care, and the war in Iraq the name of an outside company is never too far from the lead. Are contracts the most efficient way to get things done or are we setting our government up to be at the mercy of vendors now one more step removed from citizens’ needs.

DPAP Associate Professor Joceyln Johnston sees the complexities of the new public manager once responsible for programs and now in charge of huge contracts. In her research, Johnston focuses on intergovernmental programs and policy, intergovernmental fiscal relations, and public management, in additional to government contracts. Her recently completed funded research includes Medicaid, among other programs. Her publications can be seen in such scholarly journals as Public Administration Review, Journal of Public Administration Research and Theory, Health Affairs, State and Local Government Review, and Publius. From 2002 to 2003, Johnston served as chair of the national Association for Budgeting and Financial Management, a section of the American Society for Public Administration.

These days it seems likely that a government manager is managing a contract and contractor rather than a program. What has happened?

Although government contracting has been around since long before our founders crafted our constitution, reforms that have taken hold in the United States during the last 25 years have resulted in a significant increase in contracting—or what some call “privatization.” Many public administration scholars study a reform movement known as “new public management” (loosely related to the Clinton-Gore Reinventing Government effort). New public management, based in part on closely studied reforms in other western democracies, is built on the notion of using market tools to deliver government services whenever possible. The influence of these reforms has led to what some scholars have called “the hollow state.” This simply refers to the fact that increasingly, public managers are administering contracts instead of programs or workforces, and that much of the work of government is done by nongovernmental organizations.

Does this signal a change in the nature of government?

Yes and no. We have a long tradition of public administration reform here in the United States. Our political culture has driven us to continually look to the private sector for administrative and management solutions. What’s different about the current trend is that, while past reforms focused on “business” and “private-sector” solutions to administrative problems, this reform focuses somewhat less on administration and more on the use of market tools to improve government production and service provision. Past reforms focused on how we could manage government better. This reform looks more at how we can use nongovernmental entities to do what government has traditionally done. The underlying assumption is that the “market” can do it better.

Can you explain the concept of transaction costs. What does this mean? How does it make a difference?

Transaction costs refer to the “extra” costs involved in contracting. Many of these costs are direct administrative costs related to designing the contract, soliciting proposals or bids, selecting providers, and monitoring contracts. Other transaction costs are far less direct and include such items as staff and time costs associated with ongoing negotiations between the government and contractors (over shifting performance expectations, for instance), or the costs to government of monitoring, maintaining, and expanding the available supply of providers and bidders. Regardless of the type of transaction cost, the bottom line is that in most instances, government decision makers simply don’t consider them when calculating the costs and benefits of contracting out, as compared to in-house service delivery. These costs are real but are typically not calculated or publicly scrutinized.

Are our government executives prepared to manage contracts?

Although some officials are prepared, many, if not most, are not. Training for government executives has not traditionally focused on the types of skills required for contract management. On the other hand, like much of traditional public administration, a great deal of the work of contract management is shaped by politics, resources, organizational dynamics, and the factors that we have always focused on in the education and training of public servants. Contract management requires specific skills but is also enhanced by experience with the particular programs or functions that are contracted out. Those with defense expertise are critical to the successful administration of defense contracts, for instance. The need to better prepare our government workforce for contract management is urgently emphasized by GAO and other analysts. This need is especially critical when we take into account the attrition of government administrators with extensive program and management experience through retirement, movement to private- and nonprofit-sector employment, etc. We need program and policy experts to understand what contractors are doing, but these experts are becoming scarce at all levels of government.

Before your academic career, you managed social welfare programs, so you have seen the delivery of government services to real clients. Has this experience informed your research?

When you understand how vulnerable populations are affected by publicly funded programs, you simply have to be concerned about the impact of contracting. Here are some simple issues to consider: Are vulnerable clients being treated with dignity and respect? Do contracting organizations try to exclude high-cost clients—those with more complex or hard-to-treat needs? Government-run social welfare programs are usually prohibited from discrimination against clients with such needs. Such prohibitions are evident, for instance, in requirements that our public schools must educate most students with special needs. Schools can’t exclude such students simply because they may cost more to educate.Whether a contractor is a for-profit or nonprofit organization, that organization will face financial incentives to cut costs, and high-cost clients don’t help them! Bear in mind that most organizations serving vulnerable populations, whether public or private, care deeply about the well being of these groups and individuals. But contracting, by its very nature, creates financial incentives that can threaten fundamental values like fairness and equity. This is especially true of performance contracts, which put extra cost pressures on contractors. Government-run social programs are hardly perfect, but we can correct problems more readily than we can with contracted programs that are not directly accountable to citizens or their representatives.

Is this new dependence on contracts a blip? Will we return to a government of program managers?

Most scholars who study this issue don’t think it will end or diminish anytime soon. We have expectations now in our society that government will function better if we take advantage of market dynamics and tools. But it seems clear that the sharp upward trajectory in the scale and scope of government contracting is likely to flatten out—indeed, it probably already has—if only because of increased political and media scrutiny stemming from contracts for services in Iraq.

In short, what do you think contracts mean to us as citizens?

Contracts challenge all of us to be ever more vigilant about how our services are produced and delivered. We all want better quality at lower cost, yet we need to remember that much of what government does really doesn’t fit the market model. Regardless of cost and market forces, our society has decided that fairness is an important value, but it is a value that we safeguard in government precisely because it is not explicitly protected in nongovernmental sectors. Bottom line: We need to be more selective and cautious about which government functions and services are “contracted out,” and we need to watch those contracts carefully. We must keep contractors accountable to the people. This is a huge political and management challenge, and it doesn’t come cheap.